Persistent sinks 10% on Q1 profit warning, analysts wary

Moneycontrol Bureau

Shares of Persistent slumped 10.5 percent, touching 52-week low at Rs 644.35 intraday on Wednesday as it has sounded a profit warning for April-June quarter of FY16. The IT service company has alerted investors that certain client specific issues could result in dollar revenue decline sequentially.

"Some of the pre-cloud/pre-internet software product companies, who are our customers are re-organising their priorities. Consequently, weakness in our current product engineering business coupled with quarterly variability associated with our IP business could result in a marginally lower dollar revenue for this quarter as compared to previous quarter,” it said in a statement to the BSE.

Chalking out details of road ahead, it has the applied for higher number of H1B visas. Recently it has acquired a cloud product called Convirture and looking to acquire more products to grow IP revenues.

However, this is not impressing analysts.

BNP Paribas has downgraded the stock to reduce and slashed target price by 31 percent to Rs 600 per share. It has also cut FY16-18 dollar revenue estimates 5-11 percent, EBIT margin 120- 310 basis points and earnings per share (EPS) by 11-23 percent. This is the second successive quarter of negative pre-announcements.

Antique also maintains a sell rating with a target price of Rs 600 per share. It has reduced FY16-17 EPS by 9-4 percent. The company had reported dollar revenue growth of 12.6 percent in FY15. Due to lower growth in Q1FY16, it would need to report dollar revenue compounded quarterly growth rate of 5.8 percent in the rest of the year to post similar to FY15 growth in FY16, the brokerage says. It also adds that Persistent will find it difficult to achieve as it is facing problems in core business.

However, Prabhudas Lilladher still maintains buy rating but has reduced to Rs 910 from Rs 1000 per share. It says wage hike in Q2FY16 may impact margin by another 200 basis points in constant currency term.

At 12:06 hrs Persistent Systems was at Rs 645.25, down Rs 75.00, or 10.41 percent on the BSE.